As Ohio's economy sours, candidates spread blame; but do state policies really matter?

Nov. 25, 2013

With the 2014 gubernatorial campaign around the corner, the political bickering has started: Who’s to blame?

The reality, economists say, is that no Ohio politician did anything to screw up substantially or save the state’s economy during the recession or the recovery. Forces beyond the control of state politicians drove Ohio’s success immediately after the recession and are again steering the economy now that those days are over.

“There are too many moving parts in the economy to think you can make one small change here and one small change there and really make the economy move,” said Janet Harrah, senior director of Northern Kentucky University’s Center for Economic Analysis and Development.

That isn’t stopping the Democrats’ 2014 gubernatorial candidate, Cuyahoga County Executive Ed FitzGerald, from pointing a finger at one of Gov. John Kasich’s signature policy moves. JobsOhio, the state’s privatized economic development agency, has proved “completely ineffective,” he says. The Republican Kasich, on the other hand, has sought to turn the conversation to Washington, saying its gridlock and policies have job creators “worried about where we’re going as a country.”

Neither man has much hope of making a meaningful change in the economy. But if Kasich wants an easy walk to a second term – and a boost in his prospects for a 2016 presidential bid – he probably should hope the economy picks up. And if FitzGerald wants to unseat him, a poor economy might help his case, said Vladimir Kogan, a political scientist at Ohio State University.

“There’s really not all that much evidence that candidates matter that much in state elections,” Kogan said. “The state of the economy matters a lot.”

Rising jobless rate spurs more debate

The finger-pointing over the economy intensified last week when the latest jobs numbers showed Ohio’s unemployment rate, now 7.5 percent, has climbed through 2013 and now is above the national rate for the first time in almost three years.

Employment growth was anemic, with just 2,400 jobs added in September and October to a state economy with 5.2 million jobs. Hiring in such crucial industries as manufacturing and construction has been flat or in decline for months.

So what happened to the “Ohio Miracle,” as Kasich and some others called Ohio’s post-recession economy?

The “miracle,” economists say, was the byproduct of a recovery that initially relied on manufacturing – something Ohio has in abundance. The start of the U.S. economic recovery meant that people who had stopped buying durable goods and companies that had let inventories shrivel during the recession suddenly needed that stuff again.

It was Ohio’s good fortune that workers here happened to make a lot of it: About 13 percent of Ohio jobs are in manufacturing, compared with 9 percent nationally. Thanks to the 2008 and 2009 auto bailouts – which came from politicians in Washington, not Columbus – Ohio manufacturers were still in business, still had workers and were ready to work.

So hiring improved, business picked up and the unemployment rate fell at a faster rate here than in most of the rest of the country.

Over time, though, companies restocked their shelves and warehouses, and consumers satisfied their pent-up demand for new refrigerators and cars. Manufacturing slowed, and so did the rest of Ohio’s economy.

The state’s stagnant economic performance over the past year indicates a “return to trend,” said Joel Elvery, an economist at the Cleveland Federal Reserve. That’s economist talk for Ohio’s returning to growth rates that lag at least slightly behind the rest of the nation.

Many factors impact growth – quality of the workforce, infrastructure, tax policies – but the one that seems to matter most in Ohio is population. Put simply, Elvery said, the state isn’t growing fast enough to keep up.

Ohio has gained fewer than 1 million residents since 1970. Florida’s population, by contrast, has more than doubled over those same 40 years.

“Ohio has been a slow-growth state for a long time, and that’s tied to population growth,” Elvery said. “A lot of natural growth in the economy is from population growth.”

To make matters worse, at least from an employment perspective, companies learned to be more efficient after cutting so many jobs in the recession. So when sales picked up a bit, they didn’t need to hire as many new workers to meet demand.

“People are finding out they can do more with less,” said Julie Heath, director of the University of Cincinnati’s Economic Center. “There’s nothing like a crisis to get people to try something different.”

Government impact is hard to measure

As for the ability of governments or politicians to move the dial, economists say it can happen, but it’s rare to see it in the short-term. More often, they say, long-term change can come from policies on taxes, regulations, education and workforce development.

They say state development efforts, now in the hands of Kasich’s JobsOhio, do play a part. But the forces at work in the larger economy – from exports to China to the struggles of some European countries – probably are more important.

“The impact of economic policy can be somewhat overstated,” said Karl Kuykendall, an economist who follows Ohio for IHS Global Insight. “I’m skeptical of how big of an impact government policy can have in the short run.”

JobsOhio President John Minor said he’s confident the agency can have a big impact, but he said he knows much of the group’s work will take time to bear fruit. “There are a lot of factors that affect job creation,” he told Enquirer reporters and editors last month, defending the economic development group amid the current economic malaise.

Unfortunately for Kasich, the administration linked JobsOhio and Kasich’s tax policy so intimately with Ohio’s improving post-recession economy that it’s hard to keep the governor’s efforts from taking the blame for current economic realities. Kasich has started to spend more time acknowledging the problems in Ohio’s economy and less time trumpeting its successes. Often, he points to national politicians in Washington, D.C., as bearing much of the blame.

To some extent, he has a point. While state and even federal government actions often have little immediate impact, big events sometimes do. The post-recession stimulus package and auto bailout had at least a short-term, positive effect on employment.

More recently, the government shutdown, the sequester budget cuts and continued fighting over the debt limit have had a negative impact, some economists say.

“These jobs reports – they have to settle down before we know exactly where we are,” Kasich told reporters this month. “There isn’t any question that we face a headwind from Washington. There’s no doubt about it – whether it’s the government shutdown or whether it’s the threat of higher taxes or whether it’s uncertainty.

“The kind of economic growth – job growth – that we’ve seen has been anemic compared to most recoveries,” Kasich said.

Then he referred to income-tax cuts and deregulation. “We’re on our way back. The most important thing for Ohio now (is) to be viewed, which it increasingly is, as a safe place to do business. And you can trust that in Ohio,” he said.

Shifting blame to Washington might be tricky for Kasich, even if economists say he raises valid points about the impact of the shutdown and other issues in the nation’s capital. That’s because Kasich never gave Washington credit when times were good. For better or worse, Kasich credited his policies and JobsOhio with much of the success of the Ohio Miracle – which has now become low-hanging political fruit.

“When the economic numbers were bad under (former Gov.) Ted Strickland, he said (Strickland) was completely to blame,” FitzGerald said. “When they were good, (Kasich) took the credit. And now that they’re bad again, he needs to step up and say that his strategy isn’t working.

“He declared that he was fully in charge of Ohio’s economy, so the fact that we haven’t added any jobs in the past year is at his doorstep.”

It may not be fair, but blaming incumbent is the easy choice

Hammering Kasich on the economy and JobsOhio is a good political move for FitzGerald, even if it’s not fair, said Kogan, the Ohio State political scientist.

“Ohio hasn’t done all that well under the governor,” Kogan said. “I don’t think Kasich deserves any blame for the recovery just like I don’t think Ted Strickland deserves much blame for the pace of the recovery. But politically, that would be the best strategy.”

Even with Ohio’s current economic blahs, FitzGerald may have farther to go to convince Ohioans of the state of the economy, much less that Kasich should take the blame for it.

“In spite of recent indications that the performance of the state’s economy is beginning to reflect that of the nation as a whole, more Ohio voters offer positive assessments of their state’s economy than they do of the nation’s economy as a whole,” said analysts from the Mercyhurst Center for Applied Politics, which released a new Ohio poll on Friday. While 62 percent of Ohioans polled believe the state’s economy is “not so good” or “poor,” 80 percent described the national economy the same way.

Respondents to the poll were nearly twice as likely to blame President Barack Obama, Republicans in Congress or Democrats in Congress for making Ohio’s economy worse than they were to blame Kasich. In fact, half of Ohioans approved of Kasich’s job performance as governor and about a third disapprove, according to the poll.

The election is 11 months away, giving both Kasich and FitzGerald several months for the economy to turn out their way. If the economy continues to stagnate, expect to hear less about JobsOhio from Kasich and more from FitzGerald about jobs.

If the state’s fortunes start to improve, expect Kasich to credit Jobs­Ohio and tax cuts with job creation in the state – and FitzGerald to turn his attention elsewhere.

That’s just the way campaigns work, say political scientists and economists. Even if the governor has a limited impact on the economy, the economy is likely to have a major impact on the outcome of the election. Expect to see a similar effect in the 2016 presidential election as swing-state Ohio considers its economic fortunes as it weighs whether to put a new party into power.

“The CEO is judged by the latest quarterly earnings report, and it’s the same with politicians,” Harrah said. “They’re judged by the latest jobs report.” ⬛